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Cumis Insurance Society, Inc. v. Zia Credit Union

United States District Court, D. New Mexico

February 26, 2019

CUMIS INSURANCE SOCIETY, INC., an Iowa corporation, Plaintiff,
v.
ZIA CREDIT UNION, a domestic Credit Union, Defendant.

          MEMORANDUM OPINION AND ORDER

          ROBERT C. BRACK SENIOR U.S. DISTRICT JUDGE.

         In 2013, Ms. Stella Vigil filed a lawsuit against Zia Credit Union (Zia) in New Mexico state district court to recover money that Zia had seized from a joint account that Ms. Vigil held with her daughter. CUMIS Insurance Society, Inc. (CUMIS), Zia's insurer, defended Zia in the state suit subject to a reservation of rights. In February 2018, after a jury found in Ms. Vigil's favor, the state court issued its final judgment, which included an award of over $650, 000 in damages. Thereafter, Zia moved to file a third-party complaint in the state action against CUMIS, seeking a declaratory judgment regarding the scope of coverage under the applicable insurance policy. CUMIS then filed a complaint in this Court, seeking declaratory relief on the issues of whether CUMIS owes a duty to defend and/or indemnify Zia in the underlying state case. Zia moved to dismiss or stay CUMIS's lawsuit.

         In November 2018, Zia satisfied the judgment and the state court dismissed Ms. Vigil from all further proceedings in the state case. CUMIS then removed Zia's third-party complaint to this Court. Zia now moves to dismiss CUMIS's complaint in the lawsuit CUMIS filed and to remand the third-party complaint that CUMIS removed. CUMIS moves to consolidate the two cases. After considering the parties' briefs and the relevant law, the Court will deny CUMIS's motion to consolidate and grant Zia's motion in part-staying this case. The Court will not rule on Zia's motion to remand, which is pending before United States District Judge Martha Vazquez.

         I. Background

         Ms. Vigil opened a shared savings account at Zia Credit Union with her daughter, Ms. Cassandra Trujillo, so that Ms. Trujillo could manage the account in the event of Ms. Vigil's illness or death. (Doc. 1-B ¶¶ 3-5.) Years later, Ms. Trujillo defaulted on a loan with Zia. (Id. ¶¶ 21-24.) Ms. Vigil did not co-sign on the loan or pledge the funds in her savings account to secure Ms. Trujillo's loan. (Id. ¶ 22.) Although Ms. Trujillo had never contributed any funds to the joint savings account, Zia seized all of the funds in the account to satisfy the debt, against Ms. Vigil's and Ms. Trujillo's wishes and in contravention of state law. (Id. ¶¶ 26-28, 34.) Ms. Vigil filed suit against Zia in state court on January 17, 2013. (See Id. at 1.)

         CUMIS insured Zia under a “Management and Professional Liability Policy.” (Doc. 1 ¶ 6; see also Doc. 1-A.) Pursuant to this policy, CUMIS notified Zia on February 7, 2013, that CUMIS would provide for Zia's defense against Ms. Vigil's suit subject to a reservation of rights. (Docs. 1 ¶ 9; 12-A.) In 2014, Ms. Vigil offered to settle the lawsuit for $350, 000. (Docs. 12 at 2; 12-B.) Zia consulted with its counsel and concluded that “there was ‘a substantial likelihood of an adverse verdict in excess of policy limits[]' . . . [and] demanded that CUMIS settle the case.” (Doc. 12 at 2 (quoting Doc. 12-C at 1).) CUMIS disagreed and refused to accept Ms. Vigil's offer. (Id. (citing Doc. 12-D).) The case went to trial, and the jury returned a verdict for Ms. Vigil. (Id. at 3.) The state court entered final judgment on February 21, 2018, awarding Ms. Vigil $650, 105.78. (Id.)

         On February 23, 2018, “CUMIS informed Zia that none of the relief awarded” to Ms. Vigil is covered by the insurance policy. (Id. (quoting Doc. 12-H) (quotation marks omitted).) Zia filed a motion for leave to file a third-party complaint in Ms. Vigil's lawsuit on June 21, 2018, seeking a declaration from the state court regarding CUMIS's duty to defend and indemnify Zia. (See id.; Doc. 12-I.) Over three weeks later, CUMIS filed its Complaint for Declaratory Relief in this Court, seeking a declaratory judgment on whether it has a duty to defend or indemnify Zia. (See Doc. 1.) Zia moved to dismiss CUMIS's federal lawsuit in August 2018. (Doc. 12.) Several months later, CUMIS filed a motion to dismiss Zia's third-party complaint in the state action. See Vigil v. Zia Credit Union, D-117-CV-201300032, Mot. to Dismiss (1st Jud. Dist. Nov. 9, 2018). Before that motion was fully briefed, “Zia satisfied the judgment in favor of Ms. Vigil[, ]” and the state court dismissed her from the lawsuit entirely. (See 18cv1210, Doc. 12 at 2.) With Ms. Vigil out of the state suit, CUMIS removed Zia's third-party complaint to this Court (18cv1210, Doc. 1) and moved to consolidate the two federal cases (Doc. 26). Zia opposes the motion to consolidate (see Doc. 28) and moves to remand the removed third-party complaint (18cv1210, Doc. 5).

         II. The Court will deny CUMIS's motion to consolidate.

         CUMIS has moved to consolidate the two actions pending in federal court because they pose “an identical question: whether CUMIS's Management & Professional Liability Policy . . . provides insurance coverage for” the judgment Ms. Vigil obtained against Zia in the state case. (See Doc. 26 at 1.) Referencing its motion to remand in 18cv1210, Zia argues that removal was improper, thus CUMIS's removed action is not truly “pending” and consolidation is inappropriate under Federal Rule of Civil Procedure 42. (See Doc. 28 at 3; see also 18cv1210, Doc. 5.) Judge Vazquez has not decided the motion to remand in 18cv1210; consequently, “it would be inappropriate and premature for the Court to consolidate these cases.”[1] See Great Am. Ins. Co. v. Crabtree, No. CIV 11-1129 JB/KBM, 2012 WL 3656500, at *20 (D.N.M. Aug. 23, 2010) (citing U.S. for Use of Owens-Corning Fiberglass Corp. v. Brandt Constr. Co., 826 F.2d 643, 647 (7th Cir. 1987) (“Rule 42(a) requires that both actions be ‘pending before the court' and an improperly removed action does not meet this criterion.”)) (subsequent and internal citations omitted). Thus, the Court will deny CUMIS's motion to consolidate.

         III. The Court will grant Zia's motion in part and stay the case.

         CUMIS seeks a declaration that it does not have a duty to either defend or indemnify Zia in the underlying action. (See Doc. 1.) Zia contends that the Court should decline to exercise its jurisdiction over this lawsuit. (See Doc. 12.) CUMIS filed this action under the Declaratory Judgment Act, which confers discretion on the Court to “declare the rights and other legal relations of any interested party seeking such declaration . . . .” 28 U.S.C. § 2201. (See also Doc. 1.) To determine whether to exercise jurisdiction over CUMIS's case, the Court must decide “whether ‘the questions in controversy between the parties to the federal suit . . . can better be settled in the proceeding pending in the state court.'” Burlington Ins. Co. v. Las Cruces Gospel Rescue Mission, Inc., No. 2:11-CV-0544-WJ-WPL, 2011 WL 13284626, at *2 (D.N.M. Oct. 12, 2011) (quoting Brillhart v. Excess Ins. Co., 316 U.S. 491, 494 (1942)) (subsequent citation omitted).

The Tenth Circuit has adopted a five-factor test for evaluating whether a district court should exercise its discretionary jurisdiction over a declaratory judgment action. See St. Paul Fire and Marine Ins. Co. v. Runyon, 53 F.3d 1167, 1169 (10th Cir. 1995). These factors include:
[1] whether a declaratory action would settle the controversy; [2] whether it would serve a useful purpose in clarifying the legal relations at issue; [3] whether the declaratory remedy is being used merely for the purpose of “procedural fencing” or “to provide an arena for a race to res judicata”; [4] whether use of a declaratory action would increase friction between our federal and state courts and improperly encroach upon state jurisdiction; and [5] whether there is an alternative remedy which is better or more effective.

Valdez v. Metro. Prop. & Cas. Ins. Co., 867 F.Supp.2d 1143, 1168 (D.N.M. 2012) (quoting St. Paul Fire & Marine Ins. Co., 53 F.3d at 1169 (quoting State Farm Fire & Cas. Co. v. Mhoon, 31 F.3d 979, 983 (10th Cir. ...


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